Hungary’s central bank is likely to lower the base rate and the future of the euro-zone’s bailout package for Greece will drive markets in the region Tuesday.

The Hungarian central bank is widely expected to lower its base rate, currently the highest in the European Union, to 6% from 6.25%.

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Analysts expect the four dovish rate-setting board members, eager to promote economic growth, to out vote the three hawks–the bank’s governor and his two deputies–on the board.

Analysts and the hawkish members of the rate-setting board have opposed further rate cuts on fears that looser monetary policy could make Hungary more vulnerable to outside shocks such as any further slowdown in the euro zone, which might turn investors’ sentiment sour over emerging market assets.

Moreover, the hawks argue that inflation, currently running at 6% on the year, is unlikely to slow to around the bank’s 3% target in the near term.

“The continued rise in Hungarian inflation is worrying, particularly because the lackluster growth in the Hungarian economy reflects to a large extent deteriorating supply-side conditions,” Danske Bank analyst Stanislava Pravdova said in a note. “Therefore, contrary to most places in Europe, monetary policy is unlikely to improve growth fundamentally without inflation getting seriously out of control.”

If euro-zone finance ministers reach their delayed deal on unlocking the next round of aid for Greece, markets in Central Europe will likely react positively.

OTHER NEWS

CZECH REPUBLIC: Protesters rallied in Prague Monday demanding Greece free two Czech computer game developers arrested there on suspicion of espionage over two months ago for filming military sites, AFP reported.

Martin Pezlar and Ivan Buchta, who specialise in making popular military-themed computer games, were arrested on September 9 after being caught on the Aegean island of Lemnos with cameras containing video footage of various military installations. If convicted, the two face up to 20 years in prison.

HUNGARY: Hungary’s parliament approved late Monday a controversial shake-up of the electoral system, seen by some as an attempt by Prime Minister Viktor Orban to boost his chances of winning another term in 2014, AFP reported.

Critics say the law, which sets out electoral procedures in Hungary, benefits the government by restricting campaign advertising and requiring voters to register no later than 15 days before election day.

POLAND: Fitch Ratings believes that shale gas production in Poland could improve the country’s security of gas supplies but is unlikely to lead to large declines in gas prices before 2020.

Shale gas production in Poland, which has one of the highest shale development potentials in Europe, would lower the country’s dependence on gas imports (currently covering about 70% of gas demand), most of which comes from Russia.

The open-ended strike calls for a 10% increase in wages in the central European country, where teachers’ salaries fall well below the national average.

SLOVAKIA: Rights watchdogs in Slovakia have accused authorities of persecuting a documentary filmmaker who made a movie raising allegations of mass corruption in the justice system and could now face up to two years in prison, AFP reported.

Zuzana Piussi’s documentary “The Disease of the Third Power” claims that despite the ex-communist country’s successful economic transition into the eurozone in 2009, Slovakia still struggles with an ill-reformed judiciary.

In the movie, Piussi used an image of a judge filmed without consent, placing a black stripe over the woman’s face to protect her identity.

The judge, identified by Slovak media as Helena Kozikova, has taken legal action against Piussi, alleging a violation of her right to privacy. Prosecutors are expected to decide soon whether to press charges, which would carry a maximum penalty of two years behind bars.

SLOVENIA: Slovenian police used tear gas in Maribor on Monday to disperse a thousands-strong rally calling for the resignation of centre-right mayor Franc Kangler, police said.

An estimated 10,000 citizens, according to the Slovenian news agency STA, gathered on Monday at the fourth protest called by a civil society group to demand the resignation of Kangler, accused by the country’s anti-corruption commission of acting in a corrupt manner at the expense of the public.

UKRAINE: Ukraine on Monday launched a project to build its first liquefied natural gas (LNG) regasification terminal as it seeks to ease its dependence on energy imports from neighbouring Russia, AFP reported.

RUSSIA: Two Russian billionaires are close to a deal to resolve a four-year conflict over control of the world’s largest nickel and palladium producer, which could see dividends boosted and one of the tycoons take over as chief executive, people familiar with the matter said on Monday.

About Emerging Europe

Emerging Europe Real Time provides sharp analysis and insight into what’s making news in Central and Eastern Europe. Drawing on the expertise of our reporters in the Czech Republic, Hungary, Poland, Russia and Turkey, the site provides an inside track on economics, politics and business in this emerging part of the European continent.